Living and working in the UK as an official resident is an exciting time. If you’ve taken the plunge to become a new citizen, or you’re just trying to figure out what on earth to do about your tax situation, this is really the right guide for you. You don’t ever want to just ignore the subject of taxes at all. This is something that some people do, only to find that they’ve opened themselves up to significant penalties and damages that will have to be paid.
The tax that you’ll probably be most concerned with is income tax, which is a tax on some of the money that comes into your pocket. Income isn’t always taxable, and there are allowances that reduce your bill dramatically. It’s just a matter of capitalizing on them.
We created a separate tax guide away from the US system of doing taxes for a few reasons. First anted foremost, it’s easy to assume that the US system is all you need to focus on, but that’s not the case at all. Both countries run their tax system very differently. So even if you’re used to US information, it’s very important that you get the facts on taxes when it comes to the UK.
First and foremost, you pay taxes on taxable income. That might sound a bit redundant, but it’s going to make sense in just a minute. You have to understand that once again, you don’t have to pay taxes on all of your income — just some of it over a certain level.
Taxable income sources include earnings from employment from another company, earnings from self-employment (your own company), pensions income (State, company, and personal pensions), the interest off savings accounts, and the income from shares (also referred to as dividends), rental income, and income paid to you by a trust.
There are sources of income that you don’t ever have to pay tax on. This would include premium bond wins, income from tax exempt accounts, the Working Tax Credit, and other benefits. For example, lump sum bereavement payments are non-taxable income, as well as the Maternity Allowance. However, Jobseeker’s Allowance and Employment and Support Allowances are taxable sources of income. If you have a lodger in your family home, that’s also considered taxable income.
There are some allowances that are designed to give you some relief. The Personal Allowance is designed to set the bar for what your taxable income starts at. At this time, the basic tax-free amount is 7,475 GBP, which means that you can make this amount or lower and have a tax-free life. It’s not very much money as it relates to the general cost of living, but that’s the basic rate in a nutshell.
If you are legally blind, you can also have the Blind Person’s Allowance, which allows you to make a little more without paying taxes.
There are other allowances and reliefs that might be available to you, such as tax relief for business expenses that you paid for in the midst of performing your job. For example, if you had to travel for work to a conference, those expenses would be added as tax relief.
Self-employed people aren’t left out in the cold here, either: they can deduct the costs of taking care of their business and expanding it out.
Like in the US, there is tax relief for pension contributions. Saving for retirement is definitely important, which means that you have some different options here.
This is just the basic scope of your taxes. In the next portion, we’ll cover actually filing your taxes and checking for any other relives and allowances that you might be entitled to.